Quantum Computing Inc. (NASDAQ:QUBT) has exploded by a jaw-dropping 408% in just the past month. It’s probably over $4 by the time you read this article. The stock has gone from trading around $0.71 to over $3.8 as of writing. Investors are clearly excited about QUBT’s triple-digit revenue growth and major contracts with high-profile customers like NASA and Johns Hopkins. But with the stock now trading at nose-bleed levels, is it too late to jump on the QUBT bandwagon? Or is there still room for this rocket ship to keep soaring? Let’s find out.

Why Is QUBT Stock Up So Much?

It’s important to understand the massive opportunity in quantum computing first. The recent AI boom has been straining traditional supply chains for semiconductors and quantum computing is the obvious next step as transistors can only get so small. They’re already approaching their limits, so it makes sense why investors are piling into QUBT stock.

According to Fortune Business Insights, the global quantum computing market was worth $1.2 billion in 2024 and is projected to reach $12.6 billion by 2032. That’s a compound annual growth rate of nearly 35%. It’s a gold rush, and everyone wants a piece of the action. Tech giants are mostly the ones spearheading this tech–IBM, Google, Amazon, and Microsoft, for example–and are all heavily investing in quantum computing.

However, what drove the recent rally is due to the company receiving its first order for thin film lithium niobate (TFLN) photonic chip technology and good Q3 results. We’ll look into the latter later. But first, what is TFLN photonic chip technology?

We need to dig deeper to answer that.

What Does Quantum Computing Inc. Really Do?

Quantum Computing Inc. is an integrated photonics and quantum optics tech company. They specialize in nanophotonic-based quantum entropy solutions that operate at room temperature and low power consumption. This visualization should help you understand it:

Most competitors are using superconducting qubits that require extremely cold temperatures. On the other hand, QUBT’s quantum computers operate at room temperature using light particles, i.e. photons. This makes QUBT’s systems a lot more efficient.

The company’s flagship product is the Dirac-3: the first commercial photonic quantum computer capable of tackling complex optimization problems. QUBT is doubling down on this photonic approach with a dedicated photonics foundry being built in Arizona. If it can establish itself as a leader in this niche, the sky’s the limit.

On the other hand, TFLN is a chip technology that can be used in various photonic applications. It’s a photonic chip technology for high-performance integrated circuits.

How is Quantum Computing Inc. Doing Financially?

Before you go mortgaging the farm to buy QUBT stock, we need to talk about the elephant in the room: profitability. Or rather, the lack thereof. While QUBT’s revenue is growing like gangbusters–more than doubling year-over-year last quarter–the company is still deep in the red.

In Q3, QUBT posted a net loss of $5.7 million. Gross margins took a nosedive from 52% to a measly 9% due to high costs on a prototype contract. That’s a huge red flag. If QUBT can’t get its cost structure under control as it scales up, profitability could remain a distant dream. And with the stock trading at an astronomical price-to-sales ratio of nearly 800 based on last quarter’s revenue, there’s little margin for error. Here’s a quick glance:

Note: Quantum Computing Inc. claimed they could reach cash flow breakeven “within 2 years” a year ago. They are nowhere near that breakeven right now, and I personally do not think they will be able to reach that target even in the next two years.

Regardless, there are other risks to consider with QUBT. The quantum computing field is still in its infancy and evolving rapidly. There are significant technical challenges in building quantum systems that are reliable and scalable enough for real-world applications.

QUBT will also face intense competition–not just from other quantum startups–but from deep-pocketed tech giants. If the likes of Google or IBM make a major breakthrough, it could leave smaller players like QUBT in the dust. There’s no way QUBT can sustain its losses and massive dilution, so there will always be bottlenecks in place to how its tech progresses. In fact, its current burn rate suggests the need for additional financing within 2-3 quarters.

The 10-Q explicitly states: ” It is management’s opinion that these conditions raise substantial doubt about our ability to continue as a going concern.” This is a crucial warning for investors. The company acknowledges it needs further funding to operate for the next 12 months. Their cash and cash equivalents were $3.1 million as of September 30, 2024.

This same amount of money is pocket change for a company like IBM; they could even buy this company if they wanted.

And of course, there’s always the possibility that the quantum computing hype doesn’t live up to reality–at least not on the timeline that investors are betting on. If adoption is slower than expected or the technology hits roadblocks, QUBT’s growth story could unravel quickly.

How is Quantum Computing Inc. Expected to Perform Financially Going Forward?

This is a pretty small company–it might not seem like it due to the huge amount of premium that has been slapped on the stock recently–but it is tiny if you look into what the books contain. Accordingly, the amount of information here is pretty limited.

This is from SeekingAlpha’s page where one analyst sees $500,000 in revenue for all of 2024 and $1.5 million for all of 2025. They don’t see profits coming in anytime soon and EPS is still expected to be -$0.21 in 2025. Again, this is just one “analyst,” so take that as you will.

The 10-Q offers more specifics on revenue sources: “Revenues for the three months…2024 were $101 thousand compared to $50 thousand…an increase of…102%. Revenues for the nine months…2024 were $311 thousand compared to $283 thousand…an increase of…10%. The respective increases in revenues are primarily due to changes in the number of, size of and level of effort performed on active customer proof-of-concept and research and development services and custom hardware contracts.” The company needs to keep landing new contracts or this growth is going to vanish.

Also, the drop in gross margin is explained: “The respective changes were nearly entirely the result of a new custom hardware contract that has lower margins due to its cost of revenues being comprised of other direct component costs in addition to direct labor expenses.” This suggests that even as revenue increases, profitability is not guaranteed going forward and depends heavily on the mix of contracts secured.

Moreover, several ongoing legal battles, including the BV Advisory appraisal action and a defamation lawsuit. While the outcomes are uncertain, these proceedings add to the company’s risk profile and could result in significant financial or reputational damage.

How High or Low Could QUBT Stock Go?

Before I explore that, let’s take a look at the “value” this stock offers right now:

The one analyst covering QUBT tags it as a buy. They recently raised the price target from $8.25 to $8.50, implying the stock could more than double from current levels around $3.8.

Now, I always take analyst opinions with a big grain of salt, especially when there’s only one voice in the room. But still, a 125% implied upside is nothing to sneeze at. If QUBT can deliver on its growth promises, there could be plenty more runway ahead.

As for how low it can go–well: zero. It isn’t going to zero overnight, but if the business fails to keep pace and doesn’t manage to raise cash, there is a possibility of this company going bankrupt. That said, I think this is unlikely in the near term since I don’t think the US can afford to lose out on quantum computing startups while it is in a tech race in this sector with China.

The Bottom Line

There’s no denying the company has a compelling story. It’s a pioneer in the fascinating field of quantum computing with a differentiated photonic approach. Revenue is soaring and the company is landing contracts with prestigious clients. The lone analyst covering the stock sees huge upside potential.

But at the same time–as I’ve discussed–QUBT is still a highly speculative and risky bet. It’s unprofitable with shaky margins, faces daunting competition, and trades at an exorbitant valuation.

For investors with an iron stomach and the ability to tolerate volatility, QUBT might be worth a small position as part of a diversified portfolio. But be prepared for a wild ride and don’t invest more than you can afford to lose.

For most investors, the prudent approach is probably to watch QUBT’s story play out from the sidelines for now. If the company can demonstrate sustained execution and a path to profitability, then it might be time to consider jumping in. But until then, caution is warranted. The quantum computing gold rush is exciting, but like any gold rush, there will likely be more losers than winners.

While I acknowledge the potential of QUBT as an AI play, my conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None.